Nothing's Certain but Climate Change, Irrationality and Taxes.

Natural to behave irrationally? Not from the free-market economist's point of view. Climate change is just
one more policy problem designed for the market to suss out as it efficiently collects information about the decisions of rational humans acting in their own best interest.

However, the WaPo article describes how behavioral psychology provides insight into reasons why humans may not pay attention to — and take action on — climate change. The barriers include:

psychological distance — sense that this is a problem for somebody
else or some other time

complexity — the mechanics aren't easy to understand, and skeptics question the evidence

system justification — we favor and defend the status quo

finite pool of
worry — we can only handle so many problems at once

Given the barriers, how to address climate change before it's too late?

Appeals to save energy based on helping the environment, being socially responsible or saving money appear to be less effective than saying the majority of your neighbors are doing it, according to the article.

This reminded me of similar finding (which I couldn't locate) related to tax compliance. Filers were most likely to declare all their income and not claim false deductions if they heard most people did not cheat on their returns. The "almost everyone's honest" approach worked better than telling filers about penalties, their duty as citizens or the good uses to which taxes are put.

*****

Looking for the tax study citation, I did come across this nugget about the "net
misreporting rate" (of underreported
income and inflated deductions):

[T]axpayers whose true income was between $500,000 and $1 million a
year understated their adjusted gross incomes by 21% overall in 2001,
compared to an 8% underreporting rate for those earning $50,000 to
$100,000 and even lower rates for those earning less. [...]

In
all, because of their higher noncompliance rates, those with true
incomes of $200,000 or more received 25% of all income, but accounted
for 40% of net underreported income and 42% of underreported tax in
2001, the new analysis finds.

In other words, all our assumptions about the wealthy paying a smaller proportion of their incomes in taxes may be conservative if they are misstating their income and deductions.

*****

Here's another study (abstract only) that appears to suggest people who are trained in economics may view tax compliance differently than those who are trained to view the world behaviorally.

Italian psychology and economics students took
part in a tax compliance study that showed participants declared more income as purported detection rates rose and when tax was
framed as a gain. Psychologists declared less on their returns when they were
instructed to maximize (keep more) income, while economists declared the least regardless of how they were instructed.

****

If you're interested in this topic of how framing and default values influence choices, you might look at the TRAITS model put forward by Jay Hamilton and Scott de Marchi, or "libertarian paternalism" and "choice architecture" as explored in the book Nudge and other writing by Cass Sunstein:

What libertarian paternalists add is that the opposition between
"individual choice" and "government" is confusing and unhelpful when
government is inevitably establishing default rules that govern
outcomes if choices haven't been specifically made -- and that
influence people's choices in any case. A key point, then, is that
private and public institutions can't possibly avoid a form of
paternalism, so long as they establish default rules and starting
points. (For some reason, economists in particular seem not to
understand this point.) The question is how to make those starting
points as good as possible, while also preserving free choice.

Comments

Natural to behave irrationally? Not from the free-market economist's point of view. Climate change is just
one more policy problem designed for the market to suss out as it efficiently collects information about the decisions of rational humans acting in their own best interest.

However, the WaPo article describes how behavioral psychology provides insight into reasons why humans may not pay attention to — and take action on — climate change. The barriers include:

psychological distance — sense that this is a problem for somebody
else or some other time

complexity — the mechanics aren't easy to understand, and skeptics question the evidence

system justification — we favor and defend the status quo

finite pool of
worry — we can only handle so many problems at once

Given the barriers, how to address climate change before it's too late?

Appeals to save energy based on helping the environment, being socially responsible or saving money appear to be less effective than saying the majority of your neighbors are doing it, according to the article.

This reminded me of similar finding (which I couldn't locate) related to tax compliance. Filers were most likely to declare all their income and not claim false deductions if they heard most people did not cheat on their returns. The "almost everyone's honest" approach worked better than telling filers about penalties, their duty as citizens or the good uses to which taxes are put.

*****

Looking for the tax study citation, I did come across this nugget about the "net
misreporting rate" (of underreported
income and inflated deductions):

[T]axpayers whose true income was between $500,000 and $1 million a
year understated their adjusted gross incomes by 21% overall in 2001,
compared to an 8% underreporting rate for those earning $50,000 to
$100,000 and even lower rates for those earning less. [...]

In
all, because of their higher noncompliance rates, those with true
incomes of $200,000 or more received 25% of all income, but accounted
for 40% of net underreported income and 42% of underreported tax in
2001, the new analysis finds.

In other words, all our assumptions about the wealthy paying a smaller proportion of their incomes in taxes may be conservative if they are misstating their income and deductions.

*****

Here's another study (abstract only) that appears to suggest people who are trained in economics may view tax compliance differently than those who are trained to view the world behaviorally.

Italian psychology and economics students took
part in a tax compliance study that showed participants declared more income as purported detection rates rose and when tax was
framed as a gain. Psychologists declared less on their returns when they were
instructed to maximize (keep more) income, while economists declared the least regardless of how they were instructed.

****

If you're interested in this topic of how framing and default values influence choices, you might look at the TRAITS model put forward by Jay Hamilton and Scott de Marchi, or "libertarian paternalism" and "choice architecture" as explored in the book Nudge and other writing by Cass Sunstein:

What libertarian paternalists add is that the opposition between
"individual choice" and "government" is confusing and unhelpful when
government is inevitably establishing default rules that govern
outcomes if choices haven't been specifically made -- and that
influence people's choices in any case. A key point, then, is that
private and public institutions can't possibly avoid a form of
paternalism, so long as they establish default rules and starting
points. (For some reason, economists in particular seem not to
understand this point.) The question is how to make those starting
points as good as possible, while also preserving free choice.